July 15, 2019

African continental free trade agreement: Matters arising

ITC commends Africa on AfCFTA initiative

President Muhammadu Buhari signing the Assembly of the Union on African Continental Free Trade Area (AfCFTA) agreement on behalf of the Federal Republic of Nigeria while other officials witnessed the signing during the 12th Extra ordinary session and the First Mid-Year Coordination Meeting of the African Union at the Palais des Congres, Niamey, Niger Republic. Photo by Abayomi Adeshida 07/07/2019

By Henry Boyo

PRESIDENT Muhammadu Buhari’s endorsement, of the document establishing the AfCFTA, at the 17th Extraordinary Session of the Assembly of African Union Heads of government in Niamey, Niger Republic, last week, (July 2019), suggests that 53 countries are now party to the same AfCFTA, which Nigeria, unexpectedly, refused to sign, even after 44 other countries had endorsed the treaty in a similar convention in South Africa in March 2018.

Buhari, AfCFTA

President Muhammadu Buhari signing the Assembly of the Union on African Continental Free Trade Area (AfCFTA) agreement on behalf of the Federal Republic of Nigeria while other officials witnessed the signing during the 12th Extra ordinary session and the First Mid-Year Coordination Meeting of the African Union at the Palais des Congres, Niamey, Niger Republic. Photo by Abayomi Adeshida 07/07/2019

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President Buhari had, unexpectedly, reportedly, delayed signing, on that occasion, to allow for extensive consultations with stakeholders.

Hereafter, matters arising from the AfCFTA and the adoption of a single currency amongst member nations, will be examined in the following interrogative prose. Please read on.

What is the objective of the AfCFTA?

African Heads of government agreed in 2012, to establish a Continental Free Trade Area, while negotiations to this end, started in 2015.

The agreement eventually signed in March 2018 commits countries to removing tariffs on 90 per cent of all goods, while the balance 10 per cent of identified “sensitive items” would be later phased in as tariff free.

The agreement will also liberalize commercial services and also tackle so called “non-tariff barriers” which include extended delays and harassment at border posts.

Ultimately, free movement of people and a common currency is expected to evolve in a free trade area, which is branded as only second in size to the World Trade Organization.

What is the advantage of a single market?

Intra-Africa trade is notably, relatively, modest at barely 10 per cent by 2010 of total trade in the continent; consequently, by creating a single market for goods and services, the African Union, brings together 1.2 billion people with a combined Gross Domestic Product of more than $2tn. Nonetheless, the United Nations Economic Commission for Africa (UNECA) has also estimated that, by 2022 full implementation of the agreement could increase the 2010 Intra-Africa trade value by up to 52 per cent.

If by 2022, Intra-African trade increases by about 52 per cent of the continent’s 2010 total trade value of $2tn, what would be the impact on government revenue and social welfare?

An UNCTAD research paper concedes that the elimination of all tariffs between African Countries, would reduce the trading States’ Treasury by up to $4.1bn annually, but would also create an annual welfare gain of $16.1bn in the long run, when notably, millions of Africans would have needlessly, possibly, died before salvation comes, if it ever comes! Conversely, the $4bn projected yearly loss to African governments, from a Tariff Free regime, could, arguably, also if not properly managed, multiply in the long run, to more than $16.1bn annual loss in revenue!

Furthermore, the poorer economies, particularly, still fear that the benefits in the free trade area may not be evenly distributed.

Why did Nigeria wait till the last minute before it backed out of the agreement in 2018?

That was rather unfortunate; why the FEC, with Vice President Osibanjo, presiding, announced a decision that was, obviously, diametrically opposed to Buhari’s wish is still unclear. The Ministry of Trade and Investment was clearly not on the same page with the Presidency and other major stakeholders on this issue, as it was earlier widely reported that, Buhari would sign the agreement in Kigali, and also lobby that Nigeria should host the new Secretariat of the AfCFTA.

So was President Buhari wrong for the unexpected flip-flop at such an high-octane International Forum?

The evident contradiction between the FEC’s announcement and Buhari’s cancellation is a massive cock-up in diplomatic terms, especially with Nigeria’s role, as a major continental player. Nonetheless, despite the national embarrassment, President Buhari deserves commendation for his courage, to extricate Nigeria from an economic trap, ‘wrongly’ approved by his political lieutenants, as the appropriate road map to rapid economic and industrial expansion, with increasing job opportunities, even before, prior consultations were concluded with major stakeholders, particularly, Organised Labour and the Manufacturers Association of Nigeria.

Why did NLC and MAN oppose Nigeria’s endorsement of the Free Trade Treaty?

Well, the NLC National President, Comrade Ayuba Wabba, said in a press statement that signing the agreement was “extremely dangerous” as it was a “radioactive neo-liberal policy initiative, driven by a ministry of trade and investment, which seeks to open our seaports, airports and other businesses to unbridled foreign interference, which has never been witnessed in our history.”

Similarly, stakeholders in the Aviation subsector, have also warned that Nigeria should not endorse the AfCFTA agreement, because the policy, would constrain their businesses, as foreign airlines could schedule local flights in Nigeria, without any need to employ local staff or pay taxes. Besides, indigenous Airlines will invariably be unable to compete, with their foreign counterparts, who have greater access to much cheaper lines of credit to run their operations.

The Manufacturers Association of Nigeria, also rejected the ratification of the AfCTA, until issues of market access and enforcement of rules of origin, among other concerns, are addressed. MAN have sensibly decried the poor preparations, lack of consultations and non inclusion of inputs of key stakeholders, before Nigeria’s position was presented, in the buildup of negotiations.

MAN President, Dr. Frank Jacobs, on Wednesday March 21, 2018, also decried the removal of tariffs on 90 per cent of all goods and services offered and insisted that the balance10 per cent of goods protected by tariff, was certainly not adequate to revive and sustain Nigeria’s Manufacturing sector; The MAN President therefore advised that Nigeria’s national interest should be the primary consideration, and consequently, called for a committee of stakeholders to review the text of the AfCFTA to ensure Nigeria’s interest is protected before signing.

So is the President’s unexpected, but evidently welcome policy reversal in accord with the wishes of MAN?

Well, while briefing journalists, in Abuja on March 21st 2018, Femi Adesina, the President’s Media Adviser, reiterated President Buhari’s explanation, that “he would not agree to anything that would impede local entrepreneurs”; particularly, “anything that would encourage the dumping of finished goods, which is contrary to Nigeria’s interest.”  Consequently, President Buhari has set up a multi-disciplinary committee to consult and recommend an appropriate review.

Well if the safeguards suggested by MAN and other stakeholders are adopted, will it then become safe for Nigeria to endorse the CFTA agreement?

Unfortunately, Nigeria’s economy will remain uncompetitive and falter until lower single digit inflation rates and cost of funds with a stronger Naira prevail! Notably, lower cost import substitutes will continue to flood our markets and keep local industrial output well below full capacity.

Postscript July 7, 2019: The above article (without the introductory paragraph), was first published in March 28, 2018. However, although President Buhari has finally endorsed the AfCFTA, it is regrettably, not clear whether or not the fears of both Labour and the real sector have been thoroughly addressed.